Chinese investment in Africa

Chinese Premier Li Keqiang arrived in Ethiopia Sunday for the start of a four nation Africa tour (Nigeria, Angola and Kenya), his first visit to the continent since assuming his position a little over a year ago. Both nations signed 16 deals total which included legal accords covering diplomatic visa exemptions, cultural corporation and extradition, agreements on economic, trade and technical cooperation, loans and cooperation agreements for the construction of roads and industrial zones.

Chinese firms have invested heavily in Ethiopia in recent years with their worth swelling well over $1 billion in 2014, according to official figures.

Beijing is also a key partner in Ethiopia’s bid to expand infrastructure such as roads, railways and telecom services.

Huawei Technologies Co Ltd – the world’s second largest telecom equipment maker – and ZTE Corp are working to introduce a high-speed 4G broadband network in the Ethiopian capital Addis Ababa and a 3G service throughout the country.

Officials said both firms have now signed an $80 million deal to lay optical ground cables to form a nationwide network.

This is the second major high level visit to Ethiopia after last years visit by President Xi Jinping.

In continuation of Chinese investment, engagement and cooperation in Africa, Chinese Premier Li Keqiang unveiled extra aid for Africa totaling at least $12 billion on Monday, and offered to share advance technology with the continent to help with development of high-speed rail, boost collaboration in industry, finance, poverty reduction, ecological protection, people-to-people exchanges, and peace and security. Speaking in Addis Ababa, Ethiopia’s capital, Mr. Li also reaffirmed Beijing’s support for Africa’s infrastructure sector: “Infrastructure is the precondition to industrial development. China will actively participate in projects such as roads, railways, telecommunications and power in Africa”.

Li said that the new $12 billion credit line would be on top of the existing $20 billion already offered when former President Xi Jinping made loans of $20 billion to African nations from 2013-2015 when he visited in March 2013.

He also said China will discuss with the African Development Bank the prospect of establishing a joint fund to support infrastructure development.

This past Monday, Zimbabwe’s Vice President Joice Mujuru suggested that Zimbabwe, which currently has no currency of its own, should adopt the Chinese Yuan.

Zimbabwe’s Vice President Joice Mujuru on Monday suggested that the southern African country, which currently has no currency of its own, should adopt the Chinese Yuan.

Mujuru said China is now Zimbabwe’s biggest trading partner, with the Asian giant absorbing most of the country’s mineral and agricultural produce and this would “further cement the Look East Policy”.

Zimbabwe’s Vice President Joice Mujuru

“Adopting the Chinese Yuan would be a logical step and could help solve some of the country’s liquidity constraints,” Mujuru said.

The southern African country discarded the Zimbabwe dollar last year after hyperinflation estimated at around a trillion percent rendered it worthless.

In its place, the government adopted a range of foreign currencies, including the British Pound Sterling, American Dollar, Euro, Botswana Pula and South African Rand, as legal tender.

All transactions, including salaries for workers, in the country are carried out in foreign currency.

But last week Finance Minister Biti said the multiple currency regime would remain in place until 2012 when ministers hope it would be replaced by a single currency for the Southern Africa Development Community (SADC).

And although senior Zanu-PF officials have welcomed the suggestion made by Mujuru to adopt the Chinese Yuan, economists are not so sure.

Mujuru says this would be a “natural progression and offshoot of the Look East Policy” which has seen China emerge as the country’s biggest trading partner, absorbing most of the agricultural and mineral produce.

“I don’t see why we should not use the Chinese Yuan when most of what we are producing in the country like our tobacco and minerals are ultimately being bought by the Chinese.

She said China was not only a vast market but also the world’s fastest growing economy that needs to be deliberately incorporated into Zimbabwe’s production, manufacturing and marketing matrix.

Critics say President Mugabe, who has led Zimbabwe since independence from Britain in 1980, has destroyed one of Africa’s most promising economies through controversial policies, including the seizure of white-owned commercial farms for redistribution to inexperienced black farmers.

Mugabe, 86, denies the charge and says the economy has been sabotaged by enemies opposed to his nationalist policies.

The only reason that this idea is being floated is the poor economic mismanagement that Zimbabwe has had during the rule of Robert Mugabe. This is nothing but a political move masked in economics, since China is really the only major country backing Mugabe’s corrupt rule.

China, which has been slow in allowing the use of its currency abroad, has to be careful for blow back, especially in the region since there is a negative growing view among Africans that China is just exploiting Africa for its economic gains. If this idea of allowing the use of the Yuan goes through, see a more negative view of China spread in Africa and the world.

China will be the biggest exhibitor at the Africa Aerospace and Defence (AAD) 2010 expo in South Africa later this month, reflecting the growing military might of the Asian giant.

The move to be the biggest displayer at the expo is seen as China’s attempts to expand military ties with the African countries in lieu of getting access to their minerals and oil reserves.

China will cover more than 1,200 square metre in the expo displaying a large number of its military hardware, Defence Ministry sources told PTI here.They said the Chinese are also offering soft loans to the African nations for buying its military hardware.

“It is being seen as an effort to expand its ties with the countries in the African region,” they said, adding China has been investing heavily in expanding ties with the African nations for getting access to their natural resources such as minerals and oil.

Other countries that will take part in the largest defence exhibition of its kind in Africa include the US, France and the UK.

Indian companies such as BrahMos aerospace, Hindustan Aeronautics and Goa Shipyard are also participating in the show.

Global defence manufacturers such as Northrop Grumman, BAE Systems, Thales and EADS are also going to take part in the four-day event.

Both Nigeria and China have agreed to build a massive free trade zone in Lagos.

China and Nigeria are building one of Africa’s largest free trade zones in the commercial capital, Lagos. Chinese companies will use the facility to manufacture goods for export throughout Africa.

On the tip of the Lekki Peninsula in Lagos, Nigeria and China are building a 16,000 hectare free trade zone to develop local manufacturing and reduce Nigeria’s dependence on imported consumer goods.

It is one of the fastest growing areas in Lagos State and will soon have a new deep water port, an international airport and new hotels as part of a 60-40 partnership between the Chinese government and Lagos State.

Adeyemo Thompson is deputy managing director of the Lekki Free Zone Development Company. He says construction is on schedule for Chinese shareholders that include the China Railway Construction Corporation and the China-Africa Development Fund.

“In accordance with the master plan and the projections that we have made, I think, the first phase of the zone, that is the 3,000 hectare zone, will probably be close to a $5 billion investment, that is inclusive of the infrastructure we going to put on the ground, the roads, the power plants, the water plants,” Thompson said.

The global financial crisis has reduced demand for Chinese goods in the United States and Europe. Thompson says the Nigerian free trade zone gives Chinese companies greater access to growing African markets for consumer goods, electrical equipment, and industrial products.

“Part of the reason why Lekki Free Zone is so attractive to the Chinese is that, the Chinese government is encouraging those companies which are shutting down in China to move out,” he added. “There are funds which the government has provided for these companies to encourage them to move out to come and set up their factories in other parts of the world. We have that market. Now the Nigeria government is also encouraging investors to go to China and probably buy those factories, which are shut down, maybe at a quarter of the price and bring them into Lekki, set it up and manufacture those goods which you know you have 100 percent market right here.”

“There is a huge market immediately waiting, when you look at the how much our people spend importing goods from across the world, or for how much they pay in excess baggage at major airports, bringing this here is like bringing home prosperity,” said Fashola.

Nearly 90 percent of products used in Nigeria come from outside the country. The free trade zone will allow Nigerians to buy many of the same products now produced in China without the cost of importing them, while creating jobs for Nigerian workers.

Chinese firms gain both more immediate access to African markets and far cheaper routes to ship their “Made in Nigeria” exports to Europe.

Nigeria needs all the foreign investment that it can get. The country is too dependent on oil exports, which account for 45% of GDP and growing.

Nigeria imports everything from toothpicks to cement, with a growing proportion of the goods coming from China. The Lekki Free Zone will enable Chinese and other manufacturers to test their products on Africa’s largest potential consumer market.

China and South Africa have agreed in principle to build a rail network and infrastructure projects in Africa.

South Africa’s Standard Bank Group said on Tuesday it has signed memorandum of understanding with China Railway Group to cooperate on funding for rail and infrastructure projects in Africa. Bloomberg News reported earlier on Tuesday that China Railway is in talks with South Africa’s government to build a $30 billion high-speed rail network, citing the chairman of the firm.

South African President Jacob Zuma and a delegation of more than 370 business representatives are on a three-day trip to China, to encourage more investment in Africa’s biggest economy.

South Africa is looking for expanded trade and investment to meet its development needs by improving roads, communications and power and by generating more manufacturing jobs, Zuma told a forum of executives from the two countries.

Standard Bank, which is 20 percent owned by Industrial and Commercial Bank of China, said in an e-mailed statement the agreement “does not relate to any specific project at present”.

The talks between China Railway and the South African government are at an early stage and no funding is in place, Li Changjin said at a forum in Beijing, according to Bloomberg.

Ahead of the 2010 soccer World Cup, South Africa launched the initial phase of the continent’s first high-speed urban train, which cost 24 billion rand.

South Africa’s transport minister Sibusiso Ndebele in April proposed the construction of a multibillion-rand high-speed train network linking Johannesburg and the city of Durban.

Ndebele said at the time he would ask the cabinet in this financial year to approve a feasibility study.

South Africa wants Chinese banks to help fund the project and China Railway wants South Africa to contribute up to 40 percent of the capital, Li told Bloomberg.

Over the last decade or so, China and India have established themselves as increasingly influential players across Africa, which may turn out to be one of the most significant developments for the region in recent years.

Lets looks at the opportunities and the challenges arising from this increased presence of China and India in Africa.

There three things that we should look at:

Nature and scope of China’s recent engagement with Africa.

Brief comparison of China and India in their African engagement.

An overview of the opportunities offered to Africa as well as the challenges posed by these Asian drivers.

Economic transactions provide the most powerful evidence of China’s increasing interaction with the continent. The impact of China on Africa operates mainly through four main channels: trade; foreign direct investment; foreign aid; and migration.

By 2005, China had overtaken the UK as Africa’s third most important trading partner (after the US and France). African exports to China are predominantly primary products, mainly oil and metal products. Africa’s contribution to China’s oil imports is already significant. The majority of China’s oil imports come from Africa, not the Middle East as some would say. The bulk of China’s oil supplies are from Angola and Sudan. The Chinese oil imports from Angola have increased by 500% since 2001. Angola exported 117 million barrels to China in 2004, about 13% of China’s total oil imports. Sudan is also a non-negligible provider, and accounts for 10% of China’s total oil imports. At least eight out of ten of China’s most important African trading partners are resource-rich countries.

There is no doubt that natural resources are the core of China’s economic interest in Africa, or perhaps even its overall interest in the region. In 2004, China for example was reported to have oil stakes in as many as 11 African countries.

China’s growing influence is also a product of the strategies that Chinese companies pursue in their conquest of African markets. Chinese firms appear to be significantly less risk averse than their Western counterparts, especially in post-conflict countries such as Angola, DR Congo and Sierra Leone where a ‘first mover advantage’ plays out in favor of risk-taking entrepreneurs.

The FDI is mainly from parastatals that have access to low-cost capital, so that the Chinese investors have long planning horizons. These firms view the challenging political and economic environment in such African countries as an economic opportunity. They are able to derive huge profits from rates of return to FDI that are said to be much higher in politically volatile African countries than elsewhere.

Chinese firms also focus on specific sectors. With government support, Chinese enterprises have become a major player in the field of infrastructure (transportation, telecommunications, water conservancy, electricity and so on). Many of the projects are not commercial and are financed by ‘tied aid’. Others are not profitable because the Chinese tend to set costs below market rates, although the projects may be profitable in the long run.

Finally, Chinese firms target countries suffering from Western imposed sanctions, making China an alternative partner for countries such as Sudan and Zimbabwe.

There are Some implications of China’s economic interactions with Africa on governance. According to some analysts (e.g. Tull 2006), China’s increased presence in Africa is a political development that may not contribute to the promotion of peace, prosperity and democracy on the continent.

There are various ways that China’s economic interaction with China with Africa may undermine governance. First, promotion of democracy, for example, is not an objective of China’s foreign policy. Second, in the light of its rapidly growing dependence on mineral imports, it is unlikely that China will support recent initiatives (e.g. EITI) to transform mineral wealth from a ‘curse’ to a “blessing”. Last, China’s support for peacekeeping in Africa is a positive development. However, the support may be undermined by the country’s other policies which contribute to the eruption or extension of violent conflicts.

China, has for example provided a large contingent of peacekeeping troops to Liberia, but perpetuated the rule of Charles Taylor by buying timber from the country for a long time. China’s increasing involvement as a supplier of arms to Africa is also a source of concern.

India lacks the material capabilities and the profile to emulate or directly compete with China in Africa. At the same time, it cannot ignore Beijing’s formidable influence and areas where both actors’ interests are increasingly clashing. The solution could reside in a long-term exploration of specific sectors in which India’s relatively untapped added value can be transformed into a strategic advantage over China.

Emulationists vs. Singularists

Invite anyone to talk about Africa in New Delhi and you will almost certainly end up discussing China and listening to a lamenting chorus on India’s incapacity to hold on to the “dragon’s safari”. These disillusioned voices represent the hawkishemulationists – those who believe that India should follow and match Chinese moves in Africa step by step, without any delay or hesitation. For these fans ofrealpolitik principles, it is all about competition: Africa is just another strategic context in which India will have to blindly follow and match China’s manoeuvres, if it wants to keep its great power ambition intact.

On the other hand, you have the singularists (including an increasing number of disillusioned emulationists) who, at the other extreme, refuse any possible comparison with China and underline India’s “absolute uniqueness”. In this perspective, an Africa policy is actually unnecessary. These liberal Indian optimists take particular pleasure from African accusations depicting the Chinese as “mercantilist mandarins”. Overtly confident, singularists therefore refuse the emulationists’ competitive logic and like to believe that Africans will eventually recognize the costs of the Chinese model and opt for India as their privileged partner.

Both approaches have failed to serve Indian interests in Africa and have often led to sub-optimal policy-making. On the one hand, emulationist strategies have paid a high price because they ignore the fact that India simply lacks the financial and political capabilities to compete with the Chinese. For example, India’s public oil, gas, mining and infrastructure companies have a long record of bids and chances lost to the Chinese, starting with the 2006 Angola debacle and, more recently, in a large Ethiopian rail project. On the political front, the 2008 India-Africa summit in Delhi attracted merely 14 African heads of state and senior government leaders, as compared to 48 who had been in Beijing two years earlier.

Nor have singularist strategies proven effective. While encouraging a profound self-confidence in the merits of a supposed “Indian model” (which no one really cares to define) this option has often bred strategic inertia. The result is a general disinterest in looking at India’s presence in Africa in comparative terms and a consequent undervaluation of the continent’s importance to India’s external interests.

How then to overcome this extremist stalemate and optimize India’s presence in Africa? China’s clout in Africa gives it an uncontestable advantage over India: trade volume and preferential tariff lines; quality, speed and effectiveness of aid and credit lines; regularity of bilateral dialogues or strategic partnerships; intensity of defence relations; scope of diplomatic influence… Beijing is ahead of Delhi in most, if not all these indicators. Thus, instead of emulating China or, on the other hand, refusing any comparison with its Northern neighbour, India should identify attributes that distinguish it positively from China and that could therefore be explored as a strategic advantage in the long run.

Business model: “teaching how to fish”

Unlike the state-centric Chinese model largely focused on resource extraction and necessary infrastructure, India’s economic presence in Africa is marked by the predominance of its private sector, including a significant number of small and medium enterprises. Beyond resources and infrastructure, India has carved out niches such as information and telecommunication technologies, education and health services.

The Indian sponsored Pan-African e-Network (in partnership with the African Union) links 53 countries through tele-medicine, -education and -governance, and plays a crucial role in fostering skills and human resources that are critical for Africa to develop in a sustainable way. These projects require considerable investments but, in the long term, they will pay off as African countries start to recognize India’s added value in contributing not only to the quantity, but also to the quality of their economic growth.

Moving beyond the narrow Chinese economic focus on resources will also protect African countries from the “Dutch disease” – the dependence on the export of natural resources and a high exchange rate that stifles productivity and international competitiveness of the domestic industrial and services sectors. While China’s economic relations with Africa are actually fuelling this perverse effect, India’s business model offers healing instruments by stimulating local productivity, especially in the private sector. New Delhi should not shy away from underlining and publicizing this in bilateral and multilateral settings: instead of just “giving fish” and perpetuating Africa’s dependence on external powers, it is teaching the continent how to fish itself.

African countries are already inclined to recognize Delhi’s added value in fostering sustainable economic growth: India remains the sole Asian member country of the African Union’s Capacity Building Foundation. And India’s Technical and Economic Cooperation programme (ITEC) has seen such success among the thousands of African students and diplomats who have chosen India for training since the 1960s, that it is now undergoing rapid expansion.

Location: proximity and overlapping security interests

There are no direct flights linking Johannesburg with Shanghai or Beijing, but Mumbai is less than nine hours away from this major South African air hub. And the only direct flight connecting Ethiopia to Beijing stops over in New Delhi. Connected by the Western Indian Ocean, India and Africa share a geographical proximity and several contact points that need to be explored.

Instead, it is on the East African coast that India faces a specific advantage as a potential security provider. The piracy threat along the Somali and East African coast, often stretching wide across the ocean, offers the Indian Navy a superb opportunity to develop its blue water ambitions. By keeping these crucial sea lanes of communication and strategic chokepoints (including the Gulf of Aden and the Mozambique channel) secure, and by developing the naval capabilities of the East African states through increased joint exercises, creation of new listening posts, and the supply of vessels, India will increase its delivery capacity and assume a strategic position, at least in the East African security context.

India’s recent initiative to host the first annual Indian Ocean Naval Symposium in Delhi (from which China was excluded), as well as its commitment to revive the moribund Indian Ocean Rim Association for Regional Cooperation8 are important steps in exploring proximity to and overlapping security interests with Africa as an advantage over China. Occasional tactical triangulations with other security partners, such as the IBSA naval forces, the new AFRICOM, or the EU and NATO naval forces in the Gulf of Aden, could further leverage this advantage.

Democracy: the regime advantage

At the height of the “China in Africa” hype, African governments were often said to be keen to replicate China’s centralized and illiberal political architecture. Delhi’s emulationists often despise India’s democracy as a central obstacle to their country’s external performance and often envy the Chinese authoritarian capacity in “getting things done” in Africa. However, little suggests that African governments have in practice attempted to replicate the political features that sustain the great Chinese transformation since 1978.

Instead, unprecedented levels of sustained economic growth have actually reinvigorated Africa’s democratic competitiveness and pluralist institutions. Without falling into the temptation to export or impose its political institutions on Africa, India could perhaps shed its traditional inhibitions and start practicing its moralistic foreign policy discourse on democracy and human rights. As a founding member of the Community of Democracies, Delhi faces the opportunity to explore this “regime advantage” over China in Africa, at least in subtle and indirect ways.

For example, nine African delegations attended the International Conference on Federalism hosted by New Delhi in 2007, including Nigeria’s Vice-President who expressed his country’s interest in learning from India’s successful experience with federal democracy. Several African countries have expressed interest in working with the Election Commission of India to study and replicate India’s unique electronic voting system. India’s vibrant base of local government institutions and its independent judicial system based on the rule of law are two other areas in which India can share its unique expertise through technical cooperation, thus responding to specific African interests and, at the same time, outflank China.

Diplomacy: Southern power

China and India are both situated in the Northern Hemisphere, but paradoxically are also competing ferociously to become leaders of the “Global South”, be it during the trade negotiations at Doha or, more recently, at the climate change summit in Copenhagen. But as a traditional “bridging” or “positive power”, India has a distinct advantage: in stark contrast to the radical ideological and interventionist Chinese moves during the 1950s and 1960s, Delhi played a much more constructive diplomatic role in supporting the African independence movements in the United Nations.

India’s leading role as a “Colombo Power” in creating the Non-Alignment movement at Bandung and its central role within the Afro-Asian UN block of the 1960s has thus earned it a persisting respectability as a “Southern power”. For example, unlike China, it is a founding member of the G-77 of developing nations and held its presidency twice.

India is also a member of the influential Commonwealth organization and at the heart of the impressive Southern trilateral (and tri-continental) India-Brazil-South Africa (IBSA) axis that gives it a strategic advantage to engage with the Southern Africa Development Community (SADC) and Sub-saharan Africa. This profile offers Delhi a distinct advantage that, unfortunately, remains largely unexplored because many of the old time Africanist diplomats who served in the Ministry of External Affairs have retired over the last decade.

Diaspora: the privileged access channel

A final potential advantage resides in the cultural proximity between Africa and India. The large Indian diaspora plays a vital factor in this regard: a 2001 estimate identified close to one hundred thousand Indian citizens residing in Africa, with more than half in Eastern and Southern Africa. On top of this more recent immigrant community, there are more than one million people of Indian origin who have settled in Africa for many generations (close to one million in South Africa; 25,000 in Madagascar; 15,000 in Zimbabwe; and 8,000 in Nigeria).

Unlike the more recent and radically segregated Chinese “labour diaspora” that has often led to frictions and protests in Africa, these communities of Indian origin are fully integrated and often interested in offering their business expertise as consultants to Indian investment projects. Their local contacts also often present Delhi with privileged channels to access key political figures and represent Indian interests in moments of crisis. In Liberia, for example, the local Honorary Indian Consul, a local businessmen of Indian origin, stayed on in Monrovia throughout the various civil wars when most other diplomatic missions had to close down.

At the same time, beyond geographic proximity, India also offers a much more familiar and open society: racism against Africans in India is not uncommon, but well below the levels experienced in China. For the increasing number of African investors and students who seek opportunities abroad, English-speaking India therefore offers a much more attractive destination: an increasing number of African businessmen permanently reside in Delhi and Mumbai, and more than 10,000 African students enroll annually in Indian universities, many of them sponsored by the Indian government.

Exploring the advantage

Shashi Tharoor, the former Indian Minister of State for External Relations, who focused on relations with Africa, underlined that “we have an opportunity to enjoy a privileged position in many African countries that we would be foolish not to develop.” This “opportunity” resides precisely in the five dimensions discussed above, where India offers Africa an added value that, strategically explored, could lend it a long-term advantage over China and other competitors.

Focusing on these specific sectors, beyond the options much in vogue with offensive emulationists or passive singularists, will also help India to clarify its priorities, optimize its policy-making process and infuse its Africa policy with greater strategic depth.